GB: PMI Construction

August 2, 2016 03:30 CDT

Consensus Actual Previous
Level 44.0 45.9 46.0

The decline in UK construction activity continued apace in July. At 45.9, the sector PMI actually slighly stronger than expected but still 0.1 points short of its June reading and so below the 50 expansion threshold for a second consecutive month. Moreover, the latest post signalled the fastest rate of contraction since June 2009.

The overall deterioration largely reflected the steepest drop in commercial building in more than six-and-a-half years alongside a decrease in civil engineering for the first time so far this year. Residential building was also lower but the rate of fall here eased slightly from June's three-and-a-half year peak.

New orders were down for a third straight month and headcount was cut for the first time since May 2013. Indeed, subcontractor availability rose at its fastest pace since September 2012. As a result, subcontractor charges saw their smallest increase in more than three years. Nonetheless, the slide in the pound ensured that materials costs rose more sharply than at any time since March 2015. Against this backdrop, confidence in the year ahead decreased to its lowest level since April 2013.

There are no real surprises in today's report which simply confirms a sharp slowdown in constructer sector business activity, in large part prompted by the Brexit vote. The fact that the rate of decline was little changed from June, offers a glimmer of hope but clearly firms remain very cautious about future. Pressure continues to build on the BoE MPC to cut in interest rates on Thursday.

The Markit/CIPS UK Construction PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 170 construction companies. The panel is stratified geographically and by Standard Industrial Classification (SIC) group, based on the regional and industry contribution to GDP. Unlike other PMIs, this PMI focuses on one industry, namely UK construction.

The survey is based on techniques successfully developed in the USA over the last 60 years by the National Association of Purchasing Management. It is designed to provide one of the earliest indicators of significant change in the economy. The data collected are not opinion on what might happen in the future, but hard facts on what is actually happening at 'grass roots' level in the economy. As such the information generated on economic trends pre-dates official government statistics by many months.